United States v. Penn-Olin Chemical Company, Civ. A. No. 2282.

• Citation: 217 F. Supp. 110
• Decision Date: 01 May 1963
• Docket Number: Civ. A. No. 2282.
• Parties: UNITED STATES of America, Plaintiff, v. PENN-OLIN CHEMICAL COMPANY, Olin Mathieson Chemical Corporation and Pennsalt Chemicals Corporation, Defendants.
• Court: U.S. District Court — District of Delaware

217 F. Supp. 110

UNITED STATES of America, Plaintiff, v. PENN-OLIN CHEMICAL COMPANY, Olin Mathieson Chemical Corporation and Pennsalt Chemicals Corporation, Defendants.

Civ. A. No. 2282.

United States District Court D. Delaware.

May 1, 1963.

COPYRIGHT MATERIAL OMITTED

Alexander Greenfeld and Leonard G. Hagner, U. S. Attys., District of Delaware, Wilmington, Del., Daniel J. Freed and Edward A. Copley, Justice Dept., Antitrust Division, Washington, D. C., for United States.

William S. Potter (Berl, Potter & Anderson), Wilmington, Del., for defendants.

H. Francis DeLone and John T. Subak (Dechert, Price & Rhoads), Philadelphia, Pa., for Pennsalt Chemicals Corp.

Albert R. Connelly and John W. Barnum (Cravath, Swaine & Moore), New York City, for Olin Mathieson Chemical Corp.

STEEL, District Judge.

The Government has brought a civil action against Penn-Olin Chemical Company (Penn-Olin), Olin Mathieson Chemical Corporation (Olin), and Pennsalt Chemicals Corporation (Pennsalt), in which it seeks to prevent and restrain them from allegedly continuing to violate Section 1 of the Sherman Act, 15 U.S.C. § 1, and Section 7 of the Clayton Act, 15 U.S.C. § 18.¹

The primary attack of the Government is directed against a joint venture between Pennsalt and Olin, pursuant to which they jointly organized and have controlled Penn-Olin for the purpose of having it construct a plant at Calvert City, Kentucky to produce and sell sodium chlorate. The Government charges that the effect of the joint venture and of the action of the parties thereunder may be to substantially lessen competition and tend to create a monopoly not only in sodium chlorate, but also in other non-chlorate chemicals, in violation of Section 1 of the Sherman Act and Section 7 of the Clayton Act. By an amendment to its complaint the Government has also charged that agreements between Pennsalt and Olin entered into in December 1957 and February 1958, denominated, respectively, the "sales agreement" and the "production agreement", restrain trade and commerce in sodium chlorate in violation of Section 1 of the Sherman Act.

JURISDICTION

The Court has jurisdiction over the person of each defendant, and by virtue of Section 15 of the Clayton Act, 15 U.S.C. § 25, and Section 4 of the Sherman Act, 15 U.S.C. § 4, it has jurisdiction over the subject matter of the action.

THE DEFENDANTS

Pennsalt is a Pennsylvania corporation with its principal place of business in Philadelphia, Pennsylvania. It is a chemical company engaged in the production and sale of about 400 chemicals and chemical products, at fifteen plants located in eleven states as follows:

Alabama Ohio California Oregon Georgia Pennsylvania (2 Illinois plants) Kentucky (2 plants) Texas (3 plants) Michigan Washington

Pennsalt's nationwide sales operations are conducted from its headquarters in Philadelphia and from 18 regional offices located in 13 states as follows:

Alabama New York California (3 Ohio (2 offices) offices) Oregon Georgia Pennsylvania Illinois (2 Texas (2 offices) offices) Michigan Washington Missouri Wisconsin

Pennsalt has been engaged in the chemical business for over 110 years. In 1960 its sales amounted to over $90,000,000 on which it earned almost $5,000,000. During the same year, its assets were approximately $90,000,000. Since 1958 it has been engaged in a $55,000,000 capital investment program for the modernization and expansion of existing facilities and the construction of new ones.

Olin is a corporation organized under the laws of Virginia with its principal place of business in New York City. It is a diversified industrial corporation. The Chemical Division is one of seven operating divisions, and accounts for approximately 30% of the corporation's operating revenues. Olin's Chemicals Division produces a great number and variety of chemicals and chemical products from plants located in 15 states as follows:

Alabama Mississippi Arizona Nebraska Arkansas New York Georgia North Carolina Illinois Pennsylvania Kentucky Texas Louisiana Virginia Maryland

Olin was formed in 1954 by the merger of Olin Industries, Inc., and Mathieson Chemical Corporation. Olin's activity in the chemical business reaches back, through its predecessor, Mathieson Chemical Corporation, to 1892. In 1960 Olin had sales of $690,000,000 on which it earned a net profit of $35,000,000. Its assets during that year amounted to $860,000,000. During 1960 its capital expenditures were almost $49,000,000. Net sales of its chemical division in 1960 amounted to $217,000,000.

Penn-Olin is a Delaware corporation which was organized on February 25, 1960 by Olin and Pennsalt pursuant to a joint venture agreement between them dated February 11, 1960. Pennsalt and Olin each own one-half of Penn-Olin's capital stock. The officers of Penn-Olin are divided equally between officers of Pennsalt and officers of Olin. The board of directors of Penn-Olin is comprised equally of representatives of Pennsalt and those of Olin. Penn-Olin has no officers, directors or employees who are not concurrently employed by either Pennsalt or Olin. Penn-Olin constructed a plant at Calvert City, Kentucky at a cost of $6,454,000, for the production of 26,500 tons of sodium chlorate per year. It commenced production on September 1, 1961. By agreements executed in October 1961, dated as of January 2, 1961, Pennsalt undertook to operate the Penn-Olin plant and Olin agreed to sell its output.

All of the defendants are engaged in interstate commerce

THE ASSERTED ILLEGALITY OF THE JOINT VENTURE

The Government claims that each of the defendants was engaged in interstate commerce at the time when Pennsalt and Olin acquired the stock of Penn-Olin, that the acquisition of such stock was tantamount to an indirect acquisition by Pennsalt and Olin of the assets of the other at a time when each was subject to the jurisdiction of the Federal Trade Commission, and that the joint venture and the actions taken thereunder may result in a substantial lessening of competition in one or more sections of the country, or tend to create a monopoly, in sodium chlorate and other non-chlorate chemicals. For these reasons it is charged that Section 7 of the Clayton Act has been violated. The Government also charges that regardless of whether the joint venture involved an acquisition of stock or assets banned by Section 7 of the Clayton Act, it nevertheless constituted a combination in restraint of trade in violation of Section 1 of the Sherman Act.

The defendants deny the anticompetitive or monopolistic effect of the joint venture and assert that competition in the manufacture and sale of sodium chlorate has been increased by Penn-Olin entering the field. Defendants also contend that Section 7 of the Clayton Act is without application because, defendants say, Penn-Olin was not engaged in commerce when its stock was acquired by Olin and Pennsalt, and neither Olin nor Pennsalt acquired any interest in the assets of the other when they acquired Penn-Olin stock.²

The last defense will not be discussed since, for the reasons hereafter stated, the joint venture did not have the anticompetitive effect at which Section 7 was aimed. The Sherman Act challenge will also be disregarded, for the anticompetitive standard imposed by Section 7 of the Clayton Act is less stringent than that of the Sherman Act. Brown Shoe Co. v. United States, 370 U.S. 294, 329, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962).

Broadly speaking, the Section 7 issues to be resolved are whether the effect of the joint venture:

1. May be to substantially lessen competition or tend to create a monopoly;

2. In any section of the country;

3. In any line of commerce. These question will be discussed in inverse order:

The Relevant Lines of Commerce

The parties agree that two "lines of commerce" within the meaning of Section 7 of the Clayton Act are relevant to this case: sodium chlorate, and of the non-chlorates, calcium hypochlorite.³

Sodium Chlorate

Sodium chlorate is a white crystalline chemical. It is produced commercially by the electrolysis of an acidified solution of salt (sodium chloride). The process is closely akin to that used in the commercial production of chlorine and caustic soda. Sodium chlorate of like purity is a fungible commodity. Any which is produced for sale by a domestic producer is reasonably interchangeable with that of any other domestic producer.

In 1960 over 91,000 tons of sodium chlorate, valued at close to $18,000,000, were produced in the United States. The domestic production of sodium chlorate has increased greatly within the last ten years. From 1950-1955, the domestic production of sodium chlorate more than doubled, rising from 22,085 tons in 1950 to 46,972 tons in 1955. From 1950-1960, the production of sodium chlorate more than quadrupled, rising from 22,085 tons in 1950 to 91,900 tons in 1960.

In 1960, over 54,600 tons of sodium chlorate were produced east of the Rockies and 37,300 tons produced west. At the prevailing prices (9 cents per pound in the east and 10½ cents per pound in the west), eastern production was valued at over $9.8 million while western production amounted to $7.8 million.

The largest consumer of sodium chlorate is the pulp and paper industry. That industry uses sodium chlorate in the bleaching of pulp for brighter, higher quality paper. The pulp and paper manufacturers use sodium chlorate as a principal raw material to generate chlorine dioxide, a gaseous material which possesses the unique ability to bleach cellulose fibers to a maximum whiteness with little or no loss of fiber strength. In 1958 70,541 tons of sodium chlorate were used commercially in the United States. Of this, 29,000 tons, or 41.1%, were used in pulp and paper bleaching. The next largest amount, 16,100 tons, or 22.8%, was used for herbicides (weed control). In 1960, the national shipments amounted to 81,928 tons of which 52,415, or 64%, were for pulp and...